In The News: Homebuyers and other borrowers can expect much closer scrutiny of their financial affairs before they are granted any home loans or credit in future.
That’s because new credit legislation due to be passed in October this year will put the onus on credit lenders, including banks, retailers and microlenders, to make proper assessments of whether would-be borrowers are in a position to satisfy all their existing credit repayment obligations as well as those on any new loan.
A mortgage originator, for example, will have to take into consideration what a potential borrower might already be paying off on a car, credit card, furniture, retail account, education loan or tax bill, and assess whether the remainder of his income will be sufficient to cover the installment on a home loan as well as necessities.
Any new loan or credit agreement that is made without a proper assessment having been done will be considered “reckless” – and the lender will be liable for any costs. The only exceptions will be cases in which the potential borrower is found to have provided false information.
The new legislation, which is expected to come into effect early next year, is intended to put a stop to unfair lending practices and combat rising levels of over-indebtedness, especially among less-sophisticated borrowers.
It will result in the creation a National Credit Regulator to oversee the lending industry and educate consumers about their rights.
It will also require credit bureaus to be licensed, and to provide potential borrowers with quotes on the cost of their credit that will be binding if a loan is taken up.
Currently, according to the Department of Trade and Industry, dysfunctional credit extends to some 19-million accounts worth a total of R362-billion.
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